1. Chapter 2 Starting a Proprietorship: Changes That Affect Owner’s Equity

2. 2.1 How Transactions Change Owner’s Equity in an Accounting Equation

3.  Transactions that commonly occur during daily operations of a business: –Receives cash from sales –Sells services on account –Pays cash for rent and telephone bill –Receives cash on account –Pays cash to owner for personal use

4.  A transaction for the sale of goods or services means an increase in owner’s equity  An increase in owner’s equity resulting from the operation of a business is revenue.  Owner’s equity and cash goes up when sale for cash made

5.  A sale for which cash will be received a later date is a sale on account or a charge sale.  Regardless of when payment is made, the revenue must be recorded at the time of sale  Realization of Revenue Concept: Applied when revenue is recorded at the time goods or services are sold

6.  A transaction to pay for goods or services needed to operate a business means a decrease in owner’s equity.  A decrease in owner’s equity resulting from the operation of a business is an expense.  Expenses include: advertising, equipment rental or repairs, charitable contributions, miscellaneous items

7.  When a company receives cash from customer for a prior sale, increase cash and decrease accounts receivable balance  Assets taken out of a business for the owner’s personal use is withdrawals.  A withdrawal decreases owner’s equity.

8. 2.2 Reporting a Changed Accounting Equation on a Balance Sheet